Pershing Square SPARC Holdings, Ltd./DE Annual Report - How They Did This Year

This report reviews Pershing Square SPARC Holdings, Ltd./DE ("SPARC") for the year ending December 31, 2023. It covers the company's performance and future plans. This summary adds more detail to the official 10-K filing. It gives investors key facts to understand SPARC's unique setup and current activities.

What is SPARC, Anyway? (And How is it Different?)

First, understand that SPARC is a "shell company." This means it exists only to find a private company. Then, it merges with that company to help it go public. SPARC doesn't have its own business yet. People sometimes call it a "blank check" company for this reason.

SPARC doesn't have regular shares trading now. Instead, it has "Subscription Warrants," or SPARs. These SPARs were given out on September 30, 2023. They give you the right to buy two shares in the company SPARC eventually merges with. 120,000,000 SPARs were distributed in total. You will pay at least $10.00 per share for these. This is called the "Final Exercise Price." SPARC's Board will set this price when they sign a deal. It will not be less than $10.00 per share. The report says these warrants are registered. But the actual company shares aren't listed on a major exchange yet. So, you are investing in a future deal's potential, not an existing business.

Pershing Square SPARC Sponsor, LLC is SPARC's "Sponsor." This is the company backing SPARC. Pershing Square Capital Management (PSCM) manages the Sponsor. William A. Ackman, a famous investor, leads PSCM. His team has a long history. They had big wins, like Justice Holdings merging with Burger King. This created Restaurant Brands International. But they also had a previous SPAC. That was Pershing Square Tontine Holdings, Ltd. (PSTH). PSTH didn't find a deal. It returned about $4.0 billion to investors. This shows their experience is mixed.

SPARC is not a traditional "SPAC" (Special Purpose Acquisition Company). This is a key point. The company says several differences make it better. It's better for investors and target companies:

1. You Opt-In, Not Opt-Out: With a traditional SPAC, your money is tied up early. You must actively redeem (take your money back) if you dislike a deal. SPARC is different. You commit your money after a deal is announced. You also get to review all the details first. You actively "opt-in" if you like the deal. This prevents you from accidentally investing in a deal you don't approve.
2. No Money Tied Up (Reduced Opportunity Cost): SPACs hold your money in a trust account. It earns little interest for years while they search. SPARC does not hold your money upfront. You only invest for a short time. This is usually less than 30 business days. It will be no more than 10 months. You invest after you decide to use your SPARs for a deal. So, your cash isn't idle. You can use it for other investments. You wait until a deal you like appears.
3. Flexible Funding: SPARC first finds the best company. Then it decides how much money it needs. This lets them pursue more types of deals. They might avoid raising extra money from private investors. Such deals can sometimes have bad terms for public investors.
4. Much Less Deadline Pressure: This is a big advantage! SPARC has up to 10 years to find a company. This clock started when SPARs were given out (September 30, 2033). Traditional SPACs usually get only 2-3 years. This long time means SPARC won't rush into a bad deal. The Sponsor already invested about $40.1 million. This covers operating costs. It gives SPARC many resources for a thorough search.
5. Better Alignment with Investors (No "Sponsor Promote"):
   • In traditional SPACs, the sponsor often gets many shares. This is about 20% of the company. They get them for a very low price. This is called a "sponsor promote." This means the sponsor can profit. They profit even if public investors lose money.
   • With SPARC, the Sponsor bought "Sponsor Warrants" for $35.89 million. These warrants only make money if the new company's stock price rises. It must go up at least 20% above your purchase price. The Sponsor cannot sell these shares for three years. This setup motivates the Sponsor. They want to find a company that truly grows in value. Their goals align with yours.
   • Recently, something happened with "Advisor Warrants." These are like Sponsor Warrants, but for advisors. Ms. Lisa Gersh, an advisory board member, resigned in December 2025. In January 2026, SPARC bought back her Advisor Warrants for $1,000,000. SPARC then cancelled them. This slightly lowered the total potential dilution. It went from about 5.104% to 5.074%. This is the maximum percentage of the new company's public shares.
   • Also, other funds managed by PSCM (related to SPARC) committed to invest. They will put between $250 million and $3.5 billion into the future company. They will pay the same price per share as you.
6. Less Dilution: There is no traditional "sponsor promote." So, your shares won't immediately lose value. The Sponsor's warrants (and Advisor Warrants) only cause dilution later. This happens if the stock price rises 20% above your purchase price. Even then, the most dilution from these warrants is 4.95% (Sponsor Warrants). It's 0.124% for Advisor Warrants. This totals 5.074%. This is much less than the 20% dilution common in SPACs. SPARC also isn't issuing "IPO Warrants." These can also reduce shareholder ownership in a traditional SPAC.
   • SPARC's structure is unique. The dilution from Sponsor and Advisor Warrants is a fixed percentage. This is based on the future company's size. In traditional SPACs, sponsor ownership often grows. This happens if many public investors take their money back. This increases dilution for others. With SPARC, warrant dilution doesn't change. It's not based on deal size or SPARs exercised. This makes it more predictable.
   • Note that these Sponsor and Advisor Warrants have limits. They are sometimes called "Private Warrants." You cannot sell or transfer them for three years. This is after the company merger. They expire 10 years after the deal closes. You can use them in parts. They are generally not bought back or cancelled. Exceptions exist, like the advisor's resignation.
7. More Efficient Capital Structure:
   • SPARC did not have an expensive public sale for its SPARs. So, it avoided large underwriting fees. Traditional SPACs pay about 5.5% of raised money in fees. This includes 2% from the sponsor and 3.5% from public investors. With SPARC, 100% of your invested money funds the company merger. A typical SPAC only has about 96.5% available after fees.
   • The Sponsor pays for daily operations and expenses. This means SPARC's day-to-day costs should be lower than many SPACs. For the year ending December 31, 2023, SPARC's general expenses were about $1.5 million. This is low for a public company. This is good. It means more money goes to the actual deal.
8. Increased Deal Certainty:
   • Guaranteed Shareholder Approval: The Sponsor is currently SPARC's only shareholder. So, they can guarantee deal approval. This removes a big risk for target companies.
   • Early Satisfaction of Closing Conditions: SPARC wants to meet many deal conditions early. These include regulatory and exchange approvals. They want this done before your SPARs can be used. This is also before the "SPAR Holder Election Period" starts. They call these "Disclosure Period Closing Conditions." The goal is to meet or waive most conditions. This happens before you decide to use your SPARs. This should speed up the process. It makes the deal more likely to close fast. They expect it within 30 business days. This is after the deal's registration is effective.
   • Substantial Committed Capital: This is a huge advantage! The Sponsor's related companies, called "Forward Purchasers," committed to invest. They will put a lot of money into the future company.
     • There's a guaranteed commitment of $250 million to $1.0 billion. This depends on the final share price. This "Committed Forward Purchase" provides a solid base.
     • Plus, an "Additional Forward Purchaser" can invest more. This can be up to $3.5 billion. This extra investment has two stages:
       • First Tranche: The Additional Forward Purchaser can commit some funds. They don't have to. This happens before SPARC signs the final deal.
       • Second Tranche (Filling the Gap): Not all SPAR holders might use their SPARs. If so, the Additional Forward Purchaser can step in. They don't have to. They can buy shares equal to those unused SPARs. This ensures the target company gets needed money. This happens even if some SPAR holders don't join.
     • So, SPARC can offer a target company a large, certain amount of money. This attracts big, high-quality private companies wanting to go public.
     • These commitments are large. But no minimum SPARs must be used. Also, no SPARs are guaranteed to be used. Your choice to use your SPARs is completely up to you. Forward Purchasers offer strong support. But the actual money from SPAR holders depends on their choices.
     • Forward Purchase commitments protect SPARC. They avoid raising money from others on bad terms. However, SPARC might miss out. They could miss raising money at a higher price. This happens if market conditions improve.
     • Forward Purchase Shares will cost the same price per share. This is what you would pay if you used your SPARs.
     • Here's how much total money could be available for a merger. This assumes all SPARs are used:

    *   This table shows SPARC could bring **$1.5 billion to $12.6 billion** to a deal. This depends on the final share price and SPARs used. This is a huge amount of money. It's especially big for a company taking only a small ownership part.
    *   To give you an idea of the size: The "Committed Forward Purchase" is the guaranteed part. It represents **16.4% to 20.5%** of shares. This is if all SPARs are used. The "Maximum Additional Forward Purchase" could be much larger. It might represent **41% to over 266%** of shares from SPARs. This is especially true at lower purchase prices. These committed funds play a big role. They help ensure a deal gets funded.

Financial Overview for the Year Ended December 31, 2023

As a shell company, SPARC earns no money from operations. Its main financial work is finding a company to merge with. It also maintains its status as a public company.

For the year ending December 31, 2023, SPARC reported about $1.5 million in general expenses. These costs cover legal, accounting, and other administrative needs. The Sponsor, Pershing Square SPARC Sponsor, LLC, funds SPARC's operations. It committed to cover these costs. As of December 31, 2023, SPARC had about $1.1 million in cash. This was on its balance sheet. SPARC earns no operating money. It also does not hold investor money in a trust account. This sets it apart from traditional SPACs. Its financial health depends on the Sponsor's commitment. It also relies on finding a good company to merge with.

What Kind of Company is SPARC Looking For?

SPARC's main goal is to find a company. It wants to merge with it. This should create significant long-term value for its shareholders. They seek a specific type of business. They will consider many industries.

They have a specific rule. The target company or assets must be worth at least 80% of the money raised. This is if all SPARs are used at the Final Exercise Price. This is the "80% of net assets test." If the Board can't find the fair value, they will ask an independent financial firm.

Their Ideal Target Company:

• Simple, High-Quality Business: They want simple, high-quality businesses. These should reliably earn a lot of money. This is based on what's invested.
• Predictable Cash Flow: The company should reliably produce cash. Its future cash earnings should be easy to predict long-term.
• Resilient to Economic Swings: They prefer businesses strong against economic ups and downs. These should not be too affected by commodity prices. They should also not be too tied to economic cycles.
• Open to Complexity: They like simple businesses. But they will handle complex situations. This includes legal or structural issues. They do this if potential rewards are large enough.

How They'll Find a Target (Their Acquisition Process): SPARC will do a deep dive into any target company. This "due diligence" means checking financial reports. They review documents and meet management. They talk to employees, experts, and competitors. They also speak with customers and suppliers. They gather financial and legal information. This helps them truly understand the business's quality and value.

Specific Types of Companies SPARC is Particularly Attractive To:

1. Mature Unicorns: These are high-quality, venture-backed companies. They have grown a lot and lead their market. They also produce strong cash. Many have stayed private. SPARC offers them a way to go public. This is useful as market conditions or investor needs for cash change.
2. Carve-Out Transactions: This means buying a big, high-quality part of a larger company. This could be from a private or public firm. For the parent company, using SPARC can be faster. It's also more efficient with money. It offers more certainty than a traditional IPO for that part.
3. Family-Owned Businesses: Family-owned businesses often go public for special reasons. Family members might need cash. They might plan for new leadership. Or the family might want to step back. SPARC offers them a clear value. It helps with complex changes.
4. Private Equity-Owned Businesses: Private equity funds must eventually sell investments. They need to return money to their investors. SPARC offers a faster, more certain exit. This is better than an IPO. It comes with a clear value.
5. Control Transactions: SPARC can raise a huge amount of money, up to $12.6 billion. So, it can buy a small or large part of very big companies. These could be worth over $25 billion. Other private equity funds cannot match this scale. It also avoids competition problems. These problems often face "strategic buyers" (other big companies).

SPARC will find these deals through William Ackman's network. This includes PSCM's wide connections. They know business owners, executives, investors, and financial experts.

If SPARC picks a company that doesn't quite fit these ideals, they will tell SPAR holders. They committed to sharing this difference. This will be in their official announcement.

Why Would a Private Company Choose SPARC Over an IPO?

The report shows why a private company might choose SPARC. It could prefer SPARC over a traditional Initial Public Offering (IPO):

• Less Uncertainty: IPOs are risky and unpredictable. The final price, terms, and even if it happens are unknown. SPARC offers a surer path. It has a mutually agreed value. This reflects a deeper look at the business.
• Faster and More Capital-Efficient: Getting "IPO-ready" takes time and money. With SPARC, many steps happen during the deal process. This makes it quicker and possibly cheaper. Also, 100% of the money from public investors goes to the company. Traditional SPACs or IPOs have big fees.
• Avoids Market Swings: The IPO market can be very unstable. SPARC helps companies go public even in bad markets. It can get a better value than public investors might offer. An IPO might offer more profit if markets improve. But it also carries big risks. SPARC offers sure money and a clear value.
• Deeper Due Diligence: SPARC can get detailed, secret information. This is about a target company. They do this under a non-disclosure agreement. This helps them understand the business better. They can offer a better value. This is more than a public IPO process allows.
• Facilitates U.S. Listing: SPARC can also help foreign companies. This includes public or private firms. It helps them get listed on a U.S. stock market.

Important Considerations and Potential Risks

SPARC's structure aims to be good for investors. But you should understand some risks. These relate to the management team and deal structures.

• Management Time Commitment: Management team members don't have set hours for SPARC. They will work as much as needed until a deal closes. PSCM employs a dedicated Investment Team of nine people. They will split their time between SPARC and other Pershing Square work.
• Conflicts of Interest (General): This can create conflicts. A target company might require SPARC officers or directors to stay or leave. This condition could create a conflict when reviewing the deal.
• Conflicts of Interest (Competing Entities): PSCM manages SPARC's sponsor. But it also manages other investment funds. These funds, or other PSCM-backed companies, might compete with SPARC. They could compete for good deals. SPARC knows these conflicts can happen. It cannot promise they will be resolved in your favor. However, SPARC thinks these conflicts are minor. SPARC seeks very large private companies. It also looks for parts of big public companies. These usually fall outside other Pershing Square funds' investments.
• Conflicts of Interest (Corporate Opportunities): Most importantly, SPARC's rules (its "Charter") state something key. SPARC gives up its claim to business opportunities. This applies if a director or officer finds them through another company. So, if an officer learns of a great deal elsewhere, they must offer it there first. They don't have to offer it to SPARC. This could mean SPARC misses good opportunities.
• Potential for Minority Ownership: SPARC might buy a controlling stake. This is 50% or more of a target company's voting shares. But your ownership as a SPAR holder could still be small. This happens if SPARC issues many new shares. These go to the target company's owners. So, SPARC might control the new company. But individual SPAR holders could own less than expected.
• Changes to Agreements: SPARC can change its main documents. These include its "Charter" (company rules) or the "Definitive Agreement" (deal terms). As a SPAR holder, you have no say in these. You are not yet a shareholder. However, an amendment to the "SPAR Rights Agreement" is different. If independent directors think it could really hurt SPAR holders, then it needs approval. A majority of voting SPAR holders must agree. This protects your SPAR rights. But it doesn't protect the company structure or deal terms.
• Deal Can Be Abandoned: SPARC might decide not to do a proposed merger. This could happen if conditions aren't met. Your SPARs will remain active. SPARC will then look for another deal. If the target company backs out, SPARC will plan its next steps. It might try to restart the deal. So, a proposed deal might not always happen. You might have to wait for the next one.
• SPAR Trading on OTCQX (and associated risks): When a deal is announced, the "SPAR Holder Election Period" starts. SPARC expects your SPARs to trade on OTCQX. This is a marketplace, not a major exchange. It's not like NYSE or NASDAQ. This is a big difference with potential problems:
  • Less Information & Liquidity: It might be harder to find reliable prices. There could be less trading. This makes buying or selling SPARs difficult.
  • Higher Costs: Trading on OTCQX can mean higher costs.
  • Weaker Governance: Major exchanges have strict corporate governance rules. OTCQX has much less strict rules. For example, during the Election Period, SPARC needs only two independent directors. It needs a majority of independent directors on its audit committee. NYSE or NASDAQ have tougher rules. They require a board with mostly independent directors. They also need fully independent compensation and nominating committees. An audit committee must be all independent directors. OTCQX's weaker rules could expose SPAR holders to more risks. These relate to board oversight and protecting shareholders.